by Julian Spector
February 02, 2018

That "can-do" pioneer spirit is getting turned loose on energy reform.

Arizona utility regulator Andy Tobin, a Republican from a rural part of the state, has become fascinated with the energy transition (and storage in particular) since joining the Arizona Corporation Commission in 2016. This week he unveiled a proposal for a once-in-a-decade overhaul of the state's energy system.

The proposal still needs to be added to the agenda for the ACC's Feb. 6 meeting, and then it needs majority support from the commission in order to pass. It's by no means guaranteed, but anyone who wants to do business with storage or think about its broader role in the energy system should take a closer look at this effort.

Red state clean energy policy

The leading voices in ambitious grid reforms so far have tended to be affluent, liberal states -- namely California, New York and Massachusetts. They have a strong political consensus about tackling climate change, and are willing to spend taxpayer or ratepayer dollars to do it.

Their pioneering policies have helped bring down the costs for states that followed, but the model isn't as attractive for conservative states that don't want to earmark much cash.

Tobin's approach, then, could become a model that other conservative states follow. He emphasizes the benefits of clean energy while maintaining low prices as a core driving principal.

Arizona doesn't produce its own coal or gas, so using those fuels amounts to shipping local dollars to other states. Solar power offers a way to tap an abundant in-state resource -- sunlight -- while creating local jobs. It also serves to attract businesses to the state, bringing additional employment and revenue.

His emphasis on storing the super-cheap solar power to avoid purchasing new gas peakers is intended to avoid stranded assets landing on ratepayers' bills.

This being a solid red state, it's able to sidestep some of the internal divisions that complicate clean energy policy among more progressive constituencies. California, Massachusetts and New York all have recent cases in which environmental groups prioritized shutting down existing nuclear plants while also pushing for more clean energy.

There's room to debate the safety and waste implications of nuclear power, but for those concerned about carbon emissions, the impact is clear: those states chose to close their largest sources of zero carbon power, and now must scramble to fill the hole with new renewables, instead of displacing fossil fuels. History so far shows an increase in gas burning when nuclear plants retire.

In Arizona, that's not an issue. Tobin frames it as a "clean resource" plan rather than a "renewable energy" plan. He's not interested in picking zero-carbon energy sources to exclude years down the road. 

Tobin likes renewables, but doesn't treat them as an infallible panacea. That clear-eyed approach is bound to open up some interesting policy discussions elsewhere.

Merge renewable policy with storage policy

We've seen states craft policies to promote renewable energy expansion, and later tack on a separate target for energy storage, with some language about how it helps the overall renewables integration.

The Arizona plan, though, would fully integrate solar and storage planning in a way that strengthens both. Utilities will be instructed to plan for storage long term, and in particular to use it to ensure clean power gets delivered at peak hours.

The exact enforcement and accounting for that has to be worked out, and those details will be crucial to its overall success. But the basic premise is a big leap forward: instead of calling for the cheapest renewables whenever they feel like producing, this calls for clean energy that can be dispatched to cover the most expensive and dirtiest moments of grid operation.

The sunny, arid landscape offers an ideal testbed for this policy approach. The market has already provided bargain-priced solar PPAs, and in a few cases the utilities had procured energy storage without any government incentives, simply because it would save them money and help deal with the rise of solar.

With concerted regulatory drivers, the utilities can fully reorient themselves around cheap solar as a major energy source, stored in batteries to avoid curtailment and deliver peak power, backstopped by the massive Palo Verde nuclear plant pumping out carbon-free baseload electricity.

Clear path to implementation

Systematic energy reform demands stakeholder input. That said, such efforts can easily get bogged down when too many people have a say or wield the power to veto progress.

California tried to get a 100 percent clean energy bill through the legislature last year, but that fell through in the face of various interest groups applying leverage in Sacramento. The New York REV process has taken years of painstaking discussions with scores of stakeholders, and people are starting to get frustrated with the incremental pace.

Tobin's plan really just needs two other votes from the five-person commission. It's not clear how supportive his fellow regulators are of such an ambitious undertaking, but it's far easier to convince two individuals than the majority in a state legislature.

That's not to say this would be rammed through without community input. One key pillar, the Clean Peak, developed out of work by the state's ratepayer advocate. And if the plan is approved, there will be more comment opportunities during the rulemaking. 

The point is that this input would be premised on the notion that the change is actually happening, and the comments will fine tune the implementation. That makes for a very different conversation than the political jostling involved in passing an omnibus energy bill.

The takeaway for other states is clear: working with regulators to inform them of the role storage can play in achieving their goals pays big dividends, sometimes surprisingly fast.

Other suggested reading for the week:

  • Massachusetts tried to move forward with a major transmission line from Quebec, and it immediately ran into resistance and regulatory trouble. Quebec's hydro resources could act as a giant dispatchable battery to balance Massachusetts' renewables expansion. If a major transmission line doesn't get built, it could put more onus on the state to develop energy storage in-house.
  • S&C Electric has stopped producing its own energy storage. In a sign of the times, the early market entrant decided it couldn't compete with the gigafactories, so it's paring back to focus on microgrids and smart switches.
  • The Carlyle Group is putting some of its considerable wealth toward owning and operating portfolios of microgrids. Their initial tranche of $500 million will outshine all previous investment in this space. This is a big deal for eliminating the financing hurdle and creating a repeatable business model to get these systems deployed.